WEBVTT - Novo Falls by Record After Wegovy Maker Slashes Forecast, Names New CEO 

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<v Speaker 2>His friends call him Mikey, and I'm his friend. I'm

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<v Speaker 2>calling him Mikey. Mikey Shaw. Michael Shaw, senior Pharmer, biotechanaists

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<v Speaker 2>Bloomberg Intelligence spased in London. Mike, you got to talk

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<v Speaker 2>to me about what's going on with no vote Nordest.

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<v Speaker 2>I thought these obesity drugs were the bomb here. What's

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<v Speaker 2>going on with their guidance? That was a huge miss

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<v Speaker 2>for them.

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<v Speaker 3>Yeah, two pieces in use today versus the guidance cut,

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<v Speaker 3>so second guidance cut of the year. So reported guidance

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<v Speaker 3>now is calling for some percent sales grows, six percent

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<v Speaker 3>operating profit growth after adjusting for currency, and that compares

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<v Speaker 3>to fourteen and fifteen percent respectively previously. Now a lot

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<v Speaker 3>of that is related to the US market. There, they're

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<v Speaker 3>still seeing headwinds from compound and GLP one, which seems

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<v Speaker 3>to be the main driver that's affecting wegov growth and

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<v Speaker 3>there's a lack of visibility here. So all of that

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<v Speaker 3>creates uncertain z for investors and also kind of questions

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<v Speaker 3>around not only only twenty twenty five numbers, but the

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<v Speaker 3>exit rate into twenty six. So there's concerns about you know,

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<v Speaker 3>mid to long term growth given how concentrated or how

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<v Speaker 3>reliant sorry Novo is on WE'REGOVI for growth. The other

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<v Speaker 3>headwind is competition to a zepic, so that's the GP

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<v Speaker 3>one for diabetes and that's another you know, key growth

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<v Speaker 3>driver for the for the company. Second piece of news

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<v Speaker 3>new CEO appointment. So they went with an internal candidate.

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<v Speaker 3>I think the market was perhaps expecting them to go

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<v Speaker 3>for an external candidate, so you know, perhaps a bit

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<v Speaker 3>of disappointment there. But that said, you know he's been

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<v Speaker 3>at the company. So this is Mike Dudster. He's been

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<v Speaker 3>at the company since ninety two. He's been heading up

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<v Speaker 3>international operations since twenty sixteen, and over that time, you know,

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<v Speaker 3>we've seen international operations sales double to around eighteen billion dollars.

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<v Speaker 3>So you know, he's an internal higher, he's familiar with

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<v Speaker 3>the company culture. I think it's a bit too early

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<v Speaker 3>to you know, to write him off before he's even started. Now,

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<v Speaker 3>his focus is going to be on reget gaining ground

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<v Speaker 3>to Lily in the obesite space, maintaining leadership in the

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<v Speaker 3>diabetes space, and then improving execution. And that's something that's

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<v Speaker 3>going to be key ahead of the Cagary semma launch

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<v Speaker 3>as well as the launch for its oral JP one

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<v Speaker 3>A in obesity, particularly given you know, Cagary Summer perhaps

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<v Speaker 3>isn't as differentiated as we had hoped for, and then

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<v Speaker 3>the oral JLP one profile perhaps trails that of Lily's

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<v Speaker 3>in a car with journalists.

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<v Speaker 4>Though the new CEO said he's planning to review the

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<v Speaker 4>company's cost base with outsetting specific targets and metrics. So

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<v Speaker 4>could this indicate indicate that Novo is preparing for a

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<v Speaker 4>period of silver growth after the initial surge and demand,

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<v Speaker 4>especially the blockbuster we Go V drug.

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<v Speaker 3>I mean, I think it will be hard to slash

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<v Speaker 3>R and D to be honest, So I mean, and

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<v Speaker 3>they would need to you know, continue marketing, continue to

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<v Speaker 3>do DTC in order to you know, in order to

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<v Speaker 3>compete with Lily. They're obviously healy heavily investing into Capex

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<v Speaker 3>at the moment, but there is probably some operating leverage

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<v Speaker 3>in there, you know, to provide some sort of relief.

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<v Speaker 3>I mean, the company's got a margin of about forty

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<v Speaker 3>five percent, which is at the top end for large farmer.

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<v Speaker 2>Hey, Mike, is there any reasons to believe that maybe

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<v Speaker 2>the marketplace has been over estimating the size of this

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<v Speaker 2>OBC drug market?

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<v Speaker 3>I think, I mean, yeah, I think there's always a

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<v Speaker 3>risk with it with an indication this size when you

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<v Speaker 3>look at the market potential. You know, in the US alone,

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<v Speaker 3>it's one hundred and thirty one hundred and forty million patients,

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<v Speaker 3>which is a target population. There is a population then yeah,

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<v Speaker 3>I mean there is a risk that you know, perhaps

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<v Speaker 3>consensus did get ahead of itself. But the difficulty here is,

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<v Speaker 3>you know, you have you know, huge runway of patients.

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<v Speaker 3>There's obviously limited supply, so it's difficult to know kind

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<v Speaker 3>of you know, how quickly that supply can come on board. Now,

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<v Speaker 3>you know, Nova gives guidance around you know, their growth prospects.

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<v Speaker 3>You know where they think sales et cetera. Are going

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<v Speaker 3>to go, but they keep they don't necessarily quantify, you know,

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<v Speaker 3>the cadence supply and how that how quickly that's going

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<v Speaker 3>to come online. So that kind of makes forecasting quite difficult.

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<v Speaker 3>And obviously they don't want to give that information because

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<v Speaker 3>it's competitive information and they want, you know, Lily to

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<v Speaker 3>know about it.

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<v Speaker 2>Wait, back in my analyst days, I would have slammed

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<v Speaker 2>at this management team because that guidance was brutal. They

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<v Speaker 2>were nowhere close to hitting it in they're big reduction

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<v Speaker 2>the guidance and we see the stock down twenty two

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<v Speaker 2>percent today, down thirty seven percent year to date, fifty

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<v Speaker 2>two week low. So they're paying the price for Miikey

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<v Speaker 2>Shaw Folks is one of the best healthcare pharmat analysts

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<v Speaker 2>in the city of London. Every institutional investor wants to

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<v Speaker 2>talk to them. We appreciate getting a few minutes of

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<v Speaker 2>his time. Miikei Shaw, Senior Pharma biotech analysts Bloomberg Intelligence

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<v Speaker 2>over there in our London studios.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

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<v Speaker 2>One of my very first jobs on Wall Street back

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<v Speaker 2>in the late eighties, I was a research assistant in

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<v Speaker 2>the equity research department of paynmall recovering the railroad and

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<v Speaker 2>trucking industry. So I love the railroads. And today's a big,

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<v Speaker 2>big deal. Union Pacific agrees to acquire Norfolk Southern for

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<v Speaker 2>seventy two billion dollars. Now, the per share it's cash

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<v Speaker 2>and stock, works out to like three hundred and twenty bucks.

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<v Speaker 2>The Norfolk Southern is trading at a thirteen percent discount

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<v Speaker 2>two hundred and seventy nine dollars in works trading today.

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<v Speaker 2>It's actually down seven dollars today. I don't know what's

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<v Speaker 2>going on out there. I'm not doing this stuff for

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<v Speaker 2>a living anymore. But Lee Klaska, he is a senior

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<v Speaker 2>transport logistics and chipping alys for Bloomberg Intelligence. Lee, I

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<v Speaker 2>look at the stock price of Norfolk Southern and it

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<v Speaker 2>tells me a hefty level of skepticism out there in

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<v Speaker 2>the marketplace that this just mega deal can actually get done.

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<v Speaker 3>How do you view it?

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<v Speaker 5>Yeah, I think the whole speculation before the deal was

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<v Speaker 5>formally announced about possible consolidation, you know, really fueled shares

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<v Speaker 5>of Norfolk Southern previously. And I think people are just

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<v Speaker 5>trying to take maybe a breather right now because there

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<v Speaker 5>are some execution risks.

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<v Speaker 6>Right this deal is not going to close.

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<v Speaker 5>If it does close until early twenty twenty seven, it

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<v Speaker 5>needs regulatory approval, which is not an easy thing to do.

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<v Speaker 5>There were certain rules that we created at the Surface

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<v Speaker 5>Transportation Board to make it very difficult for a large

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<v Speaker 5>class monrail mergers to happen. That was BECAUST at one

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<v Speaker 5>time in the eighties and nineties. Those sorts of deals

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<v Speaker 5>resulted in terrible service. I think that the rails today

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<v Speaker 5>are much more cognizant of service as it relates to integration.

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<v Speaker 1>Uh.

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<v Speaker 5>And I don't really think you know, either company once once,

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<v Speaker 5>assuming a merger does happen, are going scorch earth in

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<v Speaker 5>terms of, you know, what they're going to do to

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<v Speaker 5>their networks. You know, they mentioned on the call that

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<v Speaker 5>they had earlier today that they're really not going to

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<v Speaker 5>lay off any uh, you know, frontline workers. Most of

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<v Speaker 5>the probably layoffs are going to happen, uh you know

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<v Speaker 5>in in in in the offices.

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<v Speaker 2>Uh.

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<v Speaker 5>So you know that would just mean that services uh

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<v Speaker 5>would uh prevail. And one of the reasons why they

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<v Speaker 5>are doing this, you know, from an outsider looking in,

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<v Speaker 5>you know, it does make complete sense. You're going to

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<v Speaker 5>reduce interchanges. They mentioned on their call this morning that

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<v Speaker 5>between the two of them they interchange around a million

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<v Speaker 5>car loads a day, and if they're just able to

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<v Speaker 5>if that's that car load is able to be on

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<v Speaker 5>the same network, it's not only going to improve network fluidity,

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<v Speaker 5>it will actually lower the railroads their costs. Let's hope

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<v Speaker 5>they pass on some of that cost savings to their shippers.

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<v Speaker 6>I think that's what shippers might be concerned about.

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<v Speaker 5>And it'll it'll provide probably a better service product that

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<v Speaker 5>they can go out and compete against other modes such

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<v Speaker 5>as trucks.

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<v Speaker 6>And you know that's you.

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<v Speaker 5>Know, also a good thing because you know, from an

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<v Speaker 5>environmental standpoint, railroads are less fuel efficient. You know, trucking

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<v Speaker 5>kind of deals with you know, turnover issues and trucker

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<v Speaker 5>availability issues. Right now, that's not an issue, but at

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<v Speaker 5>times it can be. And so you know, it is

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<v Speaker 5>definitely a very interesting deal. It will create the first

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<v Speaker 5>trans continental railroad, but you know, they do have their

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<v Speaker 5>work cut out for them to get that regulatory approval.

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<v Speaker 4>So the deal is worth eighty five billion dollars. How

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<v Speaker 4>do they plan to make money back? What are finential

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<v Speaker 4>wins so to speak? To justify that happy price tid.

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<v Speaker 5>Yeah, they laid out two point seven five billion in synergies,

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<v Speaker 5>about one point seven five and that two point seventy

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<v Speaker 5>five is going to be from revenue.

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<v Speaker 6>So what they're saying is that, you know, we.

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<v Speaker 5>Can probably get more volume onto the network because it

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<v Speaker 5>all of a sudden becomes a much more compelling service offering.

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<v Speaker 5>And then about a billion dollars in cost savings and

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<v Speaker 5>some of that. Again, you don't need to CEOs, you

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<v Speaker 5>don't need two CFOs, you don't need two corporate headquarters.

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<v Speaker 5>You know, the dimension They are going to have their

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<v Speaker 5>headquarter in Omaha where Union Pacific is located, and keep

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<v Speaker 5>a I think they word at a major presence in

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<v Speaker 5>Atlanta where Norfolk is currently.

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<v Speaker 6>So but you know, obviously they're not going to need

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<v Speaker 6>as much space as they once have.

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<v Speaker 5>And then there's technology benefits, you know, so you're only

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<v Speaker 5>investing you know, money in technology once, not twice to

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<v Speaker 5>get those productivity improvements.

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<v Speaker 6>So I think those are the major aspects of it.

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<v Speaker 5>And you know they mentioned that you know, they could

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<v Speaker 5>be you know EPs a creative after year or two.

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<v Speaker 2>Well, he mentioned a lot of regulatory agencies are going

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<v Speaker 2>to weigh in here on this deal. I also think

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<v Speaker 2>President Trump is likely to weigh in. Do we know

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<v Speaker 2>anything about how he might view this deal or just

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<v Speaker 2>consolidation in general? What's the views as to the Trump administration?

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<v Speaker 6>I mean, we don't.

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<v Speaker 5>The language that management noted on the call is like

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<v Speaker 5>they wouldn't have moved forward with this transaction if they

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<v Speaker 5>felt that it was impossible to get regulatory approval. So

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<v Speaker 5>whether that means they were talking to the administration, whether

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<v Speaker 5>that means they were talking to the STB or the

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<v Speaker 5>DOJ or everybody in between, that's kind of you know,

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<v Speaker 5>if you read between the lines, is what they were saying.

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<v Speaker 5>The fact that they're not going to lay off any

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<v Speaker 5>union foe is probably a net positive for a Donald

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<v Speaker 5>president Donald Trump to say, you.

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<v Speaker 6>Know, this is okay with me. You know.

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<v Speaker 5>So there's a lot of unknown still and again this

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<v Speaker 5>is this is going to take a long time.

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<v Speaker 6>So we have a deal.

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<v Speaker 5>It has to get Surface Transportation Board approval, which you

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<v Speaker 5>know won't happen at least for a year and a half.

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<v Speaker 4>Could this park more railroad mergers in the US, and

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<v Speaker 4>if it goes through, what will shipping look like in

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<v Speaker 4>fivet to ten years? You said, absolutely, please elaborate.

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<v Speaker 6>Yeah.

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<v Speaker 5>So, so the other railroads in the US are Burlington Northern,

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<v Speaker 5>which is you know, owned by Berkshire Hathway. They may

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<v Speaker 5>make their own bid for Norfolk Southern, or decide, you know,

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<v Speaker 5>we're just going to go after CSX because if they

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<v Speaker 5>do not merge, then they're going to be at a

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<v Speaker 5>competitive disadvantage. Why would you want to send your freight

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<v Speaker 5>across two railroads when you can send it across one.

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<v Speaker 6>So it just would make sense.

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<v Speaker 5>And if there is regulatory appetite for this kind of

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<v Speaker 5>a transaction, you know, you could see a Berkshire hacked

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<v Speaker 5>the Way and CSX coming and you know, if their

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<v Speaker 5>competitors were able to get a deal, there's no reason

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<v Speaker 5>why you wouldn't get a deal done between the two.

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<v Speaker 5>A lot of ifs and butts and candies and nuts,

0:12:24.000 --> 0:12:25.320
<v Speaker 5>but we'll see what happens.

0:12:25.720 --> 0:12:27.800
<v Speaker 2>For an old real estate anamals like myself, today's a

0:12:27.800 --> 0:12:29.480
<v Speaker 2>big day. I got to speak to two of my

0:12:29.600 --> 0:12:33.040
<v Speaker 2>favorite railroad anamals on Wall Street, first Tony Hatch this

0:12:33.160 --> 0:12:36.800
<v Speaker 2>morning and now leak Glasgow Senior Transport Logistics and Shipping

0:12:36.800 --> 0:12:40.360
<v Speaker 2>annals for Bloomberg Intelligence. Again the big M and A

0:12:40.559 --> 0:12:43.640
<v Speaker 2>trade of the year so far and certainly the biggest one,

0:12:43.800 --> 0:12:47.480
<v Speaker 2>well personally one. I never thought i'd see a transatlantic

0:12:47.880 --> 0:12:51.120
<v Speaker 2>a trans continental railroad. Union Pacific Regied acquired Norfolk Southern

0:12:51.600 --> 0:12:54.200
<v Speaker 2>seventy two billion dollars. That's about three and twenty dollars

0:12:54.880 --> 0:13:00.000
<v Speaker 2>a share that's in cash and stock would create North America.

0:13:00.400 --> 0:13:03.240
<v Speaker 2>The US is first transcontinental railroad.

0:13:04.040 --> 0:13:05.360
<v Speaker 6>That's a pretty cool thing.

0:13:07.120 --> 0:13:10.839
<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

0:13:10.920 --> 0:13:13.960
<v Speaker 1>weekdays at ten am Eastern on Apple Coarcklay and Android

0:13:14.000 --> 0:13:17.319
<v Speaker 1>Auto with the Bloomberg Business app. Listen on demand wherever

0:13:17.360 --> 0:13:20.480
<v Speaker 1>you get your podcasts, or watch us live on YouTube.

0:13:21.320 --> 0:13:23.559
<v Speaker 2>Isabell Lee, Paul Sweet. We're live here in our Bloomberg

0:13:23.559 --> 0:13:26.360
<v Speaker 2>Director Broker Studio, streaming live on YouTube as well. So

0:13:26.559 --> 0:13:30.280
<v Speaker 2>check us out there. Aerospace Airlines a lot of earnings

0:13:30.280 --> 0:13:32.920
<v Speaker 2>going on in that part of the world. Boeing in

0:13:33.000 --> 0:13:35.679
<v Speaker 2>jet Blue today. Let's check out with George Ferguson s

0:13:35.720 --> 0:13:38.559
<v Speaker 2>in your Aerospace, Defense and Airlines analys for Bloomberg Intelligence.

0:13:38.880 --> 0:13:41.880
<v Speaker 2>Safely asconsin don there in Princeton, New Jersey. Hey, George,

0:13:41.960 --> 0:13:46.400
<v Speaker 2>let's start with Boeing. I know, you know, for analyst investors,

0:13:46.400 --> 0:13:48.839
<v Speaker 2>for Boeing, it's all about cash flow and free cash

0:13:48.840 --> 0:13:52.520
<v Speaker 2>flow and stemming the free cash flow bleed here. How

0:13:52.520 --> 0:13:53.640
<v Speaker 2>did the company do this quarter?

0:13:54.640 --> 0:13:56.959
<v Speaker 7>Yeah, I mean, so the free cash flow is still

0:13:57.000 --> 0:14:02.160
<v Speaker 7>a little bit negative, not much. Operations positive a little

0:14:02.200 --> 0:14:04.000
<v Speaker 7>bit two hundred million. I think it was roughly on

0:14:04.520 --> 0:14:07.160
<v Speaker 7>two hundred negative free cash flow to a positive and

0:14:07.200 --> 0:14:11.400
<v Speaker 7>cash flow I think roughly. So we're seeing an inflection

0:14:11.440 --> 0:14:14.520
<v Speaker 7>point here in cash flow. So cashlow had been negative

0:14:14.520 --> 0:14:16.760
<v Speaker 7>for the last I think it was six quarters before this,

0:14:17.920 --> 0:14:19.720
<v Speaker 7>and I think that's just the sign of they're getting

0:14:19.840 --> 0:14:23.640
<v Speaker 7>more aircraft delivered. They're gonna you know, they've got a

0:14:23.680 --> 0:14:26.440
<v Speaker 7>lot of inventory still, they'll pull off the shelf to

0:14:26.480 --> 0:14:30.200
<v Speaker 7>build aircraft going forward, to pull a bigger report proportion

0:14:30.320 --> 0:14:33.360
<v Speaker 7>of stuff off the shelf than they would during normal times,

0:14:33.360 --> 0:14:36.640
<v Speaker 7>which should juice that cash flow up. Uh, you know

0:14:36.680 --> 0:14:39.720
<v Speaker 7>pretty well. So I think it it's you know, the

0:14:40.080 --> 0:14:43.960
<v Speaker 7>turnaround is still in u is underway. It looks like

0:14:44.040 --> 0:14:47.600
<v Speaker 7>it's uh, you know, well in uh you know, in

0:14:47.760 --> 0:14:51.240
<v Speaker 7>swing in the results we saw on the way you know,

0:14:51.880 --> 0:14:55.760
<v Speaker 7>company management commented on the end of the year and so, uh,

0:14:55.960 --> 0:14:58.400
<v Speaker 7>you know, I think it was a pretty good results

0:14:58.440 --> 0:15:01.280
<v Speaker 7>quarter for Boeing again, turn around intact.

0:15:01.320 --> 0:15:04.080
<v Speaker 4>How are they addressing quality in safety issues, especially when

0:15:04.120 --> 0:15:06.160
<v Speaker 4>it comes to the seven three seven MAX program.

0:15:07.520 --> 0:15:11.200
<v Speaker 7>Yeah, I mean there it's you know, as Kelly Oprok said,

0:15:11.200 --> 0:15:15.480
<v Speaker 7>it's a process. I think just the sign of seeing

0:15:15.640 --> 0:15:20.480
<v Speaker 7>increased deliveries is showing us that the quality improvement at Spirit,

0:15:21.880 --> 0:15:26.560
<v Speaker 7>you know, has has seen success. And they're talking about

0:15:26.600 --> 0:15:29.560
<v Speaker 7>you know, they're at thirty eight seven thirty sevens a

0:15:29.560 --> 0:15:32.360
<v Speaker 7>month now. Kelly Orperk says he's going to approach the

0:15:32.440 --> 0:15:36.000
<v Speaker 7>FA in a short period of time and work on

0:15:36.080 --> 0:15:39.720
<v Speaker 7>the forty two seven thirty sevens a month. So again,

0:15:39.840 --> 0:15:43.119
<v Speaker 7>he must have some level of confidence that his quality

0:15:43.960 --> 0:15:46.160
<v Speaker 7>and his engineering is good in order to in order

0:15:46.200 --> 0:15:49.040
<v Speaker 7>to go further. It's it's not perfect. They've been slowed

0:15:49.080 --> 0:15:52.240
<v Speaker 7>down a little bit in the certification of seven three

0:15:52.320 --> 0:15:55.280
<v Speaker 7>seven DASH ten and DASH seven. They've pushed them into

0:15:55.280 --> 0:15:57.840
<v Speaker 7>twenty twenty six. I think it's okay, it's not a

0:15:57.880 --> 0:16:01.400
<v Speaker 7>big move. You know, we'd like to see them come

0:16:01.480 --> 0:16:04.880
<v Speaker 7>faster because seven thirty seven to ten is a large

0:16:04.920 --> 0:16:07.800
<v Speaker 7>competitor to the Airbus A three twenty, which is very

0:16:07.840 --> 0:16:11.040
<v Speaker 7>successful and one of the reasons they saw United place

0:16:11.080 --> 0:16:13.880
<v Speaker 7>a big order with Airbus. But again, I think that

0:16:13.960 --> 0:16:16.320
<v Speaker 7>you can't expect this stuff to go on a straight line.

0:16:16.640 --> 0:16:18.280
<v Speaker 7>And the fact that they think twenty twenty six is

0:16:18.280 --> 0:16:21.920
<v Speaker 7>when they could get certification, it doesn't tell me anything's broke.

0:16:21.960 --> 0:16:25.200
<v Speaker 7>It just tells me the process is nonlinear, and I

0:16:25.240 --> 0:16:27.360
<v Speaker 7>think to be expected in aerospace.

0:16:27.200 --> 0:16:27.520
<v Speaker 6>All right.

0:16:27.800 --> 0:16:31.840
<v Speaker 2>Also, Jet Blue posted a smaller than expected loss. Here,

0:16:31.880 --> 0:16:34.200
<v Speaker 2>what's going on with Jet Blue and an airline businesses

0:16:34.240 --> 0:16:36.920
<v Speaker 2>as because I think the last quarter, Boy, these airline

0:16:36.920 --> 0:16:40.040
<v Speaker 2>companies are really reticent to give any kind of guidance.

0:16:40.920 --> 0:16:42.640
<v Speaker 7>Yeah, I mean a lot of them have come back

0:16:42.680 --> 0:16:45.720
<v Speaker 7>with guidance and a lot of cases lower a lot.

0:16:45.840 --> 0:16:48.200
<v Speaker 7>You know, the airline business right now is really counting

0:16:48.200 --> 0:16:51.880
<v Speaker 7>on less capacity in the second half of twenty twenty five,

0:16:52.240 --> 0:16:54.080
<v Speaker 7>and we'll see how that goes. Last time I looked

0:16:54.120 --> 0:16:57.400
<v Speaker 7>at domestic capacity plans for three Q it's kind of

0:16:57.400 --> 0:17:01.040
<v Speaker 7>about zero growth. I mean, I think they need to

0:17:01.080 --> 0:17:03.720
<v Speaker 7>cut capacity in the marketplace. If you look at Jet

0:17:03.800 --> 0:17:07.040
<v Speaker 7>Blues results, load factor fell by. I think it was

0:17:07.400 --> 0:17:10.960
<v Speaker 7>around three hundred basis points down to the low eighties

0:17:11.320 --> 0:17:16.480
<v Speaker 7>from mid eighties, and they held fares pretty much flat.

0:17:16.520 --> 0:17:19.520
<v Speaker 7>Yields were kind of just up a little bit. So

0:17:19.560 --> 0:17:21.919
<v Speaker 7>that just tells me that there's too much capacity in

0:17:21.960 --> 0:17:25.600
<v Speaker 7>this market. They just can't fill airplanes at the right price.

0:17:26.080 --> 0:17:28.520
<v Speaker 7>Jet Blue has other problems, like you know, the gear

0:17:28.600 --> 0:17:31.679
<v Speaker 7>turbo fan keeps them from expanding. That means costs are

0:17:31.720 --> 0:17:33.640
<v Speaker 7>ballooning on them. But I don't see how they'd want

0:17:33.680 --> 0:17:36.760
<v Speaker 7>to expand right now because again, what I see as

0:17:36.800 --> 0:17:39.920
<v Speaker 7>a market that has can't fill airplanes at the price

0:17:40.520 --> 0:17:44.080
<v Speaker 7>that's going to keep them very profitable, and so someone's

0:17:44.080 --> 0:17:46.120
<v Speaker 7>got to cut. And the question is who the full

0:17:46.160 --> 0:17:49.439
<v Speaker 7>service carriers are saying, Hey, we got premium to subsidize us.

0:17:49.560 --> 0:17:52.040
<v Speaker 7>We don't care the low costs are going to have

0:17:52.080 --> 0:17:55.280
<v Speaker 7>to jet Blue will cut in three Q but every

0:17:55.280 --> 0:17:57.240
<v Speaker 7>time they cut, their costs go high or per seat,

0:17:57.400 --> 0:18:00.000
<v Speaker 7>so they're a bit of a challenging position.

0:18:00.720 --> 0:18:03.119
<v Speaker 4>It does seem like the issues just compound for the

0:18:03.119 --> 0:18:07.400
<v Speaker 4>companies in this space from aircraft shortages, delivery delays, pilot shortages,

0:18:07.480 --> 0:18:11.880
<v Speaker 4>wage inflation, labor and negotiation and so on. Are there

0:18:11.960 --> 0:18:14.840
<v Speaker 4>differences in how Boeing and Jet Blue addressing the issues

0:18:15.000 --> 0:18:18.760
<v Speaker 4>or is really an industry wide consensus and problem.

0:18:19.280 --> 0:18:21.600
<v Speaker 7>Well, I mean if you talk to Boeing, everybody wants

0:18:21.640 --> 0:18:23.600
<v Speaker 7>an airplane, right and they're sold out in the seven

0:18:23.680 --> 0:18:25.280
<v Speaker 7>thirty seven and seventy eight seven to the end of

0:18:25.280 --> 0:18:28.159
<v Speaker 7>the decade. Everybody wants the newest. And I think what

0:18:28.280 --> 0:18:31.080
<v Speaker 7>needs to happen is again the airlines are just putting

0:18:31.119 --> 0:18:34.000
<v Speaker 7>too much capacity in the marketplace, especially in the US,

0:18:34.600 --> 0:18:38.239
<v Speaker 7>and someone has to cry uncle and say, hey, you know,

0:18:38.400 --> 0:18:42.040
<v Speaker 7>we can't take the profitability at these levels. Park some airplanes,

0:18:42.080 --> 0:18:45.200
<v Speaker 7>get them out of the business so they can write

0:18:45.200 --> 0:18:48.560
<v Speaker 7>size capacity. And I think nobody wants to do it.

0:18:49.280 --> 0:18:51.920
<v Speaker 7>You have some competitors that are in a situation where

0:18:51.960 --> 0:18:55.360
<v Speaker 7>they they you know, some of them are declared Chapter eleven.

0:18:55.640 --> 0:18:58.679
<v Speaker 7>It's like Spirit and then and then refashioned themselves and

0:18:58.680 --> 0:19:01.480
<v Speaker 7>got back out in the marketplace. But it's either someone's

0:19:01.520 --> 0:19:04.119
<v Speaker 7>going to have to go away or the market's going

0:19:04.160 --> 0:19:07.639
<v Speaker 7>to have to get negative enough and profitability that people

0:19:07.640 --> 0:19:10.879
<v Speaker 7>start to park airplanes. As we get into laid end

0:19:10.880 --> 0:19:12.880
<v Speaker 7>of this year, four Q and one Q, those are

0:19:13.240 --> 0:19:17.120
<v Speaker 7>weak quarters for the US airline industry. If something doesn't improve,

0:19:17.440 --> 0:19:20.400
<v Speaker 7>if you've got a Jet Blue that's barely positive positive

0:19:20.400 --> 0:19:24.399
<v Speaker 7>and profitability in two q without a change in this market,

0:19:24.520 --> 0:19:27.200
<v Speaker 7>that's that's a strong negative. Near the end of the year,

0:19:27.240 --> 0:19:29.800
<v Speaker 7>people will start to cut capacity and try to boost fars.

0:19:29.960 --> 0:19:31.720
<v Speaker 2>So, George, who does that? Is it one of the

0:19:31.720 --> 0:19:34.840
<v Speaker 2>big three? I mean, Jet Blue can't drive capacity in

0:19:34.840 --> 0:19:37.800
<v Speaker 2>this industry. It's got to be one of the big three, right, Yeah.

0:19:38.040 --> 0:19:40.960
<v Speaker 7>Look, I don't think it's. The big three are in

0:19:41.040 --> 0:19:43.760
<v Speaker 7>a game of chicken with the low cost right they

0:19:43.840 --> 0:19:47.280
<v Speaker 7>think that they've got pole position here and that they

0:19:47.320 --> 0:19:50.720
<v Speaker 7>just keep capacity and someone's going to fail on the

0:19:50.720 --> 0:19:53.080
<v Speaker 7>low cost side because the low cost doesn't have this,

0:19:53.760 --> 0:19:57.080
<v Speaker 7>you know, premium seating. They might be right right right now,

0:19:57.119 --> 0:20:00.240
<v Speaker 7>it looks like their profitability is hanging in there. Low

0:20:00.280 --> 0:20:02.240
<v Speaker 7>cost carriers are the ones taking it on the chin.

0:20:03.119 --> 0:20:06.600
<v Speaker 2>Yep. We saw Southbuth Airlines actually now kind of start

0:20:06.680 --> 0:20:09.359
<v Speaker 2>charging for bags and you can do seat reservations and

0:20:09.359 --> 0:20:12.240
<v Speaker 2>all this stuff on that premium Yep. They didn't do before,

0:20:12.280 --> 0:20:14.440
<v Speaker 2>which was part of their cachet. One could argue their brand,

0:20:14.440 --> 0:20:16.720
<v Speaker 2>but they're saying, heck, we need the revenue. George, thanks

0:20:16.760 --> 0:20:17.840
<v Speaker 2>so much for joining us.

0:20:17.880 --> 0:20:18.480
<v Speaker 6>We appreciate that.

0:20:18.520 --> 0:20:22.880
<v Speaker 2>George Ferguson, Senior Aerospace, Defense and Airlines Analyst. If it flies,

0:20:23.560 --> 0:20:24.920
<v Speaker 2>he knows what's going on there.

0:20:25.480 --> 0:20:30.159
<v Speaker 1>This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,

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